Chelsea Council approves resolution to pursue sewer system purchase

Chelsea Council votes to purchase sewer system

Chelsea residents filled city hall for a vote on whether to attempt to purchase the Shelby Ridge sewer system on July 10, 2018.

Chelsea Mayor Tony Picklesimer and representatives of Shelby Ridge Utility Systems and SouthWest Water Company gave two very different depictions of the current state of Chelsea's sewer system at the July 10 City Council meeting. However, the council voted in favor of a resolution to pursue purchase of the system, a move applauded by residents in the nearly-full council chambers.

Discussion of sewer rates, particularly surrounding commercial "reservation fees" for new connections to the system, have been underway for months. The city attempted to negotiate a contract with Shelby Ridge, which failed due to what PIcklesimer called "totally unacceptable" terms, and in June the mayor announced his intention to purchase the system and run it as a city service.

If a purchase cannot happen, Picklesimer has said taking over the system via eminent domain is on the table as a "last straw option."

He said in a phone call prior to the council meeting, “I’m relatively sure that it [eminent domain] will [be used], but my hope is that they will let the city of Chelsea buy the system that’s operating in our city.” He also said he's open to buying only the portion of the Shelby Ridge system that serves Chelsea, or the system as a whole.

The resolution passed tonight, however, does not mention eminent domain, only approving an appraisal of the system's value and an offer to buy it. Shelby Ridge lawyer Joe Conner, from local firm Baker Donelson, said he hoped that the resolution's wording leaves room for the city and the company to meet and discuss options before the legal battle of eminent domain.

“It’s my hope that we’re able to, with this resolution, actually sit down and talk,” Conner said.

The mayor said at tonight's council meeting that he believes Shelby Ridge has increased residential and commercial sewer rates excessively and without infrastructure or other improvements to merit the increases. This especially applied to reservation fees, which he and residents during the community forum said frequently cost above $100,000, while other nearby municipalities have similar fees around $40,000 or less.

Picklesimer has stated that he believes this has hurt commercial growth in Chelsea by driving away businesses due to the sticker shock of the reservation fees. If the city was running its system, he said reservation fees would decrease and residential fees, while they probably wouldn't go down, would be less likely to increase frequently since the city would be operating the system at-cost rather than with a profit.

Shelby Ridge sent a mailer out to Chelsea residents entitled, "Why the mayor isn't telling you the truth about the wastewater system." The mailer refutes Picklesimer's arguments for city control of the system, including that Shelby Ridge disagrees that its rates are excessive or have impacted commercial growth. The mailer also states that the $20 million valuation Picklesimer has given for the system vastly undervalues it, especially with possible legal fees.

The mayor called this mailer “little more than a personal attack on me” and responded to some of its arguments, saying that he based his assessment of Chelsea's sewer rates against surrounding wastewater systems, and his valuation of the system came from a third-party appraisal and a deed for the system filed with Shelby County.

SouthWest Water Managing Director Craig Sorenson spoke after the council vote and stated that SouthWest and Shelby Ridge stand by the arguments presented in the mailer.

Sorenson described a different picture of Shelby Ridge's system, as a company with measured growth that has invested in the community through chambers of commerce and participation in economic development. Sorenson said he believes residential growth determines commercial growth, not sewer rates, and he pointed to recent upticks in residential building permits as signs that Chelsea has continued to grow.

Sorenson said there have been 86 new sewer connections in Chelsea since April, the majority of them residential rather than commercial.

He also reminded the council that Shelby Ridge sewer system is not for sale and SouthWest and Shelby Ridge view this effort by the city of Chelsea as a "hostile takeover." He said the company is prepared to defend itself should there be a legal battle over eminent domain.

“It appears that that is where this government is heading," Sorenson said. “We are prepared to do what’s necessary."

Conner, whose law firm has represented private sewer and water companies in similar cases since 1998, said eminent domain of such systems is fairly rare and the costs, including attorney and legal fees, frequently run into the millions. He also warned that if the city changed its mind halfway through the process, it could still be on the hook for those costs.

“If you go down this path, it’s sometimes very long and it’s very expensive, and it diverts attention from things the government should be doing, we think,” Conner said via phone prior to the meeting, adding that initial valuations often pale in comparison to final purchase price.

Conner said Shelby Ridge's preferred outcome would be a contract with a governmental utilities services corporation (GUSC) formed by the city, with clear rate limits. However, an attempt at negotiating such a contract failed over the length of the contract – 99 years, with renegotiation at 25 years – and the rate increases – capped at 3.5 percent per year.

Conner also said via phone that the deal that failed had included a rate freeze until 2021. He said at this point, the company is not projecting a rate increase in 2018.

However, residents who spoke after Sorenson and Conner in the meeting's public forum described their arguments as attempts to threaten or frighten Chelsea out of their decision.

Five residents shared their experiences with the sewer system, from residential fees and payment disagreements to stalled developments or property sales falling through due to commercial sewer reservation fees.

“These people could not care less about anything but huge profits,” said resident Connie Gilliland, who previously circulated petitions and went to the state legislature in 2016 over the same issue.

“There’s no way in hell that Chelsea’s going to grow with this right here,” Chelsea resident Dale Peterson said. He has a property on U.S. 280 that has had multiple potential buyers back out, one of which directly mentioned the sewer fee as an obstacle to the sale.

Chelsea resident and builder Kyle Murphy said he called other cities' sewer departments in the county and found reservation fees as low as $4,000 or $8,000, while his plans for a 100-seat restaurant would incur an $88,000 fee plus more than $50,000 in construction costs to connect the building to the nearest existing sewer line across the street.

“Of all the water services, it makes Birmingham Water Works look good,” Greystone Farms resident and developer Jerry Ponder said.

All the Chelsea Council members present spoke in support of purchasing the system prior to their unanimous vote, citing similar concerns as the residents.

“I’m fully behind this and I believe the sewer system has been strangling the city,” council member Scott Weygand said.

After the vote, Picklesimer said he believes the next step in the process will be for the city to get a new appraisal of the Shelby Ridge system.

Brandy Nivens

Chelsea Mayor Tony Picklesimer puts a City of Chelsea pin on Brandy Nivens' Special Olympics silver medal, earned in the 25-meter backstroke.

Aside from the sewer system vote, the council also:

Recognized 32-year-old resident Brandy Nivens, who recently competed in the national Special Olympics USA games for the first time and brought home a silver medal in the 25-meter backstroke and a team gold medal in the 25-meter freestyle relay.